The AUD/USD pair rose during the session on Wednesday after initially breaking through the uptrend line of the rising channel that we have been following. The breakdown through that support level was false in fact and as such probably wiped out a few bearish traders. However, we can see that one we rose to the 1.03 level, the Australian dollar ran into serious trouble.
Looking at this chart, even though the session for Wednesday looks rather bullish, we don’t necessarily see this rally is something that will be sustainable. While it is true that there are rumors of the Federal Reserve easing monetary policy again, the truth is that we don’t know anything concrete yet, and on top of that we don’t know whether or not any of this monetary easing has done any good for global economy to begin with. In fact, there is a growing consortium of traders that believe that monetary easing is simply kicking the can down the road and causing bigger problems later.
It is because of this last fact that we believe any monetary easing will simply be a short-lived relief rally for risk assets. While it will weaken the dollar initially, it won’t clear the world of any of its close. There are still major problems in Europe, and the Federal Reserve can do very little if not nothing about them.
Looking at this chart, it becomes very obvious that a break of the lows from the Wednesday session would spell doom for the Australian dollar and send it down to the parity level. If we get that low, we suspect that there may be another surge lower down to the 0.97 area. However, you should keep in mind that there will be occasional bounce of blind hope in the markets, and this will of course put a bit in the Australian dollar.
As for buying the Aussie dollar, we would need to see a significant move higher and a daily close the match. Once we get above the 1.0375 level on the daily close, we would consider it at that point in time. Until then, we are bearish, but flat in this pair at the moment.
Written by FX Empire